Cook v. Sears-Roebuck & Co.

• Decision Date: 17 November 1947
• Docket Number: No. 4-8253.,4-8253.
• Citation: 206 S.W.2d 20
• Parties: COOK v. SEARS-ROEBUCK & CO.
• Court: Arkansas Supreme Court

206 S.W.2d 20

COOK v. SEARS-ROEBUCK & CO.

No. 4-8253.

Supreme Court of Arkansas.

November 17, 1947.

Rehearing Denied December 22, 1947.

Appeal from Chancery Court, First Division, Pulaski County; Frank H. Dodge, Chancellor.

Suit by Sears-Roebuck & Co. against Otho A. Cook, Commissioner of Revenues of the State of Arkansas, to recover gross receipts tax paid by plaintiff. From a decree for plaintiff, defendant appeals.

Reversed and judgment entered.

O. T. Ward, of Little Rock, for appellant.

House, Moses & Holmes and W. H. Jewell, all of Little Rock, for appellee.

McFADDIN, Justice.

In this appeal two questions are presented: first, whether the Arkansas Gross Receipts Tax, as levied by Act 386 of 1941, is applicable to the transactions described in the stipulation in this case; and, second, whether appellee Sears-Roebuck & Company is prevented, by its conduct, from obtaining an answer to the first question. We decide only the second question; that is, we hold that Sears-Roebuck & Company, by its conduct, is prevented from obtaining an answer to the first question as above stated.

Otho A. Cook (hereinafter referred to as "appellant") is, and was at all times hereinafter mentioned, Commissioner of Revenues of the State of Arkansas; and appellee Sears-Roebuck & Company (hereinafter referred to as "Sears") is, and was at all times hereinafter mentioned, a large merchandising establishment with retail stores in Little Rock, Hot Springs and Fort Smith. In each retail store there was a "mail order desk"¹ where the consumer could examine the catalogue for items not found in the retail store. In addition to the three retail stores, Sears also had "mail order offices"¹ in Pine Bluff, Camden, Jonesboro, El Dorado and Helena. These "mail order offices" had no merchandise on hand for sale, but had only Sears catalogues from which items could be ordered.

At either the mail order desk in any of the three retail stores, or at the mail order office in any of the other five cities mentioned, the procedure was the same: the prospective customer could examine the catalogues and order from the Memphis, Tennessee, or the Kansas City, Missouri, store of Sears any item found in the catalogues. Such an order was subject to acceptance or rejection in Memphis or Kansas City, and was shipped by carrier to the purchaser. The method of payment varied. Prices listed in the catalogue were f.o.b. the point of shipment. Were these sales thus made through such mail order desk or mail order office "sales made in Arkansas", so as to be taxable transactions under our Gross Receipts Tax Act 386 of 1941, hereinafter called the "Tax Act"? That is the original question; and the one that led to this litigation.

Prior to 1945 Sears had regularly collected, and remitted to appellant, as provided by the said Tax Act, the gross receipts tax arising from all sales made at the mail order desks and mail order offices. Beginning in January, 1945, Sears continued to collect the tax from its customers, but refused to remit to appellant any taxes so collected. In July, 1945 appellant made an assessment against Sears for $2688.44 for the tax on sales made by Sears at its mail order desks and mail order offices in Arkansas during the months of January and February 1945. After the said assessment, Sears undertook to follow the procedure of Section 10 of the Tax Act,² in that Sears: (a) seasonably protested the assessment; (b) had a hearing before the Commissioner; and (c) from the order of the Commissioner sustaining the assessment, seasonably filed its appeal in the Pulaski Chancery Court. In its chancery pleading, Sears said: "Sears-Roebuck and Company now desires that an appeal be granted it from the order of the said Commissioner of Revenues as provided in Section 10 of Act 386 of the Acts of the General Assembly of Arkansas for 1941, and that the legality of the assessment hereinbefore mentioned be determined by this court."

Sears failed to completely follow the procedure of Section 10, in that it failed to pay the tax; but, by reason of the stipulation hereinafter to be mentioned, we treat the tax as paid, and this as a suit for refund. Appellant by answer claimed that the sales of Sears to its customers at the mail order offices and mail order desks were consummated in Arkansas, and that the assessment was correct.

With the issue thus joined, appellant and Sears entered into a stipulation reciting the method of business, as hereinbefore explained, and also containing the two paragraphs, as follows:

"Sears-Roebuck and Company was duly licensed by the Revenue Department of the State of Arkansas under the Gross Receipts Tax Law and has been issued Permit No. 76-190-23. This permit is a blanket permit for the Company in Arkansas and retail stores in Little Rock, Hot Springs and Fort Smith have been issued sub-permits.

`Sears-Roebuck and Company has been collecting the Arkansas Gross Receipts Tax from the customers placing orders through order desks and order offices. Prior to 1945, the tax was remitted to the State of Arkansas on these orders. Since that time, the amounts collected have been held by Sears-Roebuck and Company pending the ultimate outcome of this suit."

The chancery court entered a decree cancelling the assessment made by the Commissioner; and from that decree, there is this appeal.

I. The Status of the Suit. At the outset, we state that we treat this case as though Sears had paid the $2,688.44 and penalty, and was here seeking to recover the same. We do this because Sears said that it was proceeding under Section 10 of the Tax Act, and that section expressly requires that the money must be paid as a prerequisite to an appeal to the chancery court. Whether appellant exceeded his authority, in failing to require Sears to make actual payment of such money, we need not now decide; but we treat this case as though Sears had fulfilled all the essentials required of it under Section 10. We do this since Sears, in invoking for its benefit Section 10 of the Tax Act, also necessarily assumed the concomitant burdens of that section.

II. Unjust Enrichment. We have previously copied two paragraphs of the stipulation; and these show (1) that Sears obtained a permit from the State to collect the sales tax from Sears' customers; and (2) that, acting under the authority and power of that permit, Sears actually collected the sales tax from the purchasers in the transactions here involved. Whose money is it now? Either, it belongs to the State, or it belongs to the persons who paid the taxes to Sears. At all events, it is not Sears' money. How, then, can Sears be heard in this effort to recover the money that it has paid? Or, if we should treat the money as still in the hands of Sears, how can Sears be heard in its effort to keep the money, which it collected as an agent of the State? The propounding of the questions suggests the answers that must be made in a court of equity. To allow Sears to recover this money, or to retain it, is to disregard completely the entire doctrine against unjust enrichment.

In the American Law Institute's Restatement of the Law of Restitution, the following appears in Section 1-A, as a fair statement of what is meant by unjust enrichment:³ "A person is unjustly enriched if the retention of the benefit would be unjust."

A well-considered case, applying the rule against unjust enrichment in a situation similar to the one in the case at bar, is Shannon v. Hughes & Co., 270 Ky. 530, 109 S.W.2d 1174, 1175. There, the State of Kentucky had undertaken to enact a retail sales tax of 7 cents per quart of ice cream. The Act had provided that the person or firm making the sale should collect the tax and remit the same to the State; and Hughes & Co., as the seller of ice cream, had collected the tax from its customers, and had remitted such collections to the State. Later, in an action by other parties, the tax had been declared void. Then Hughes & Co. brought its suit to recover the money which it had paid to the State. The Kentucky Court of Appeals, in denying Hughes & Co. any relief, applied the doctrine of unjust enrichment. We quote:

"The proof shows that appellee added the tax to the price charged for its products, and thus collected the tax from its vendees and shifted to them the economic burden of its imposition. * * * In [United States v. Jefferson Electric Manufacturing Company, 291 U.S. 386, 54 S.Ct. 443, 78 L.Ed. 859] the Supreme Court sanctioned the refusal to refund illegal taxes to one who, although he paid them, did not bear their burden. It is true that the court had under consideration in that case an act of Congress which required the claimant to prove that he had not shifted the burden of the tax as a condition precedent to his recovery. This was a legislative recognition of the principle that a taxpayer who is allowed the refund of a tax, the economic burden of which has been borne by another, has been unjustly enriched. The doctrine of unjust enrichment has received a wide application in tax cases even without the aid of a statute. The Supreme Court of Illinois in a number of decisions denied recovery of taxes paid under an unconstitutional statute levying a tax of two cents a gallon on gasoline, where it appeared that the claimant had collected the tax from his vendees, on the ground that recovery by the claimant would not inure to the benefit of the vendees. Richardson Lubricating Company v. Kinney, 337 Ill. 122, 168 N.E. 886; Standard Oil Co. v. Bollinger, 337 Ill. 353, 169 N.E. 236; Standard Oil Company v. Bollinger, 348 Ill. 82, 180 N.E. 396. * * *

"We are of the opinion that, under the circumstances herein outlined, the sellers of ice cream who paid the tax into the state treasury should show that the amounts they seek to recover do not include collections made by them from their customers pursuant to the provisions of section 2 of the act. To hold otherwise would be manifestly unjust and...